Section 15 determines what will be value of supply for levy of gst

For determination of value of supplies, supplies divided into 3 categories

(a) Value of supplies made between unrelated persons

(b) Value of supplies made between related persons

(c) Value of specified supplies

Value of supplies made between unrelated persons depends on 4 factors

(a) Price should be the sole consideration

(b) Inclusion in value

(c) Exclusion from value

(d) Treatment of discounts

Section 15(1)

The value of a supply of goods or/and services

shall be the transaction value, which is the price actually paid or payable for the said supply

where the supplier and the recipient of the supply are not related and

the price is the sole consideration for the supply.

Value of supply shall be transactional value if

Supply is between unrelated person and

Price is the sole consideration

Price actually paid or payable

Price includes the amount that has already been paid at the time the supply as well as the amount payable and not yet paid at that time.

Above provision shall not apply on supply between related person

If the supply is between persons who are related in terms of the explanation to section 15, the value of the supply would not be the transaction value but would be determined through the valuation rules provided in the CGST Rules.

Refer section 2(31) for meaning of consideration

Ex

Wholesale price for 1 MT of cement sold by X Ltd. in the ordinary course of business: Rs.7,000.

Price of 1 MT of cement sold by X Ltd. to unrelated customer Y: Rs.6,700.

Value of supply made by X Ltd. to Y is Rs.6,700 which is the price actually paid or payable and not the wholesale price.

Explanation to Section 15

(a) For the purposes of this Act, persons shall be deemed to be “Related persons” if––

(i) such persons are officers or directors of one another’s businesses;

(ii) such persons are legally recognised partners in business;

(iii) such persons are employer and employee;

(iv) any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family;

(b) the term “person” also includes legal persons;

(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

Ex

[ICMAI-F-Ch2-Ex42] [ICMAI-I-Ch2-Ex44] [Clause (iv)]

M/s Beta & Co., holds 30% shares in M/s A Ltd

M/s Beta Ltd., holds more than 25% of the share in the company A Ltd.

Hence M/s Beta Ltd and M/s A Ltd are related

Ex

Clause (vi)

Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of XYZ Ltd. ABC Ltd. and XYZ Ltd. are related.

[ICMAI-F-Ch2-Ex43] [ICMAI-I-Ch2-Ex45]

Reliable group has three companies namely M/s T Ltd., M/s L Ltd., and M/s O Ltd., as companies and M/s Reliable Ltd., as a parent company. M/s Reliable Ltd., holds 25% of the shares in group company. Therefore, T, L & O companies will be considered as related persons.

Ex

Q Ltd. has a deciding role in corporate policy, operations management and quality control of R Ltd.

It can be said that Q Ltd. Controls R Ltd. Thus, Q Ltd. and R Ltd. are related.

Ex

Alpha Ltd. controls the composition of Board of directors of Beta Ltd. and Gama Ltd. It is said to control both Beta Ltd. and Gama Ltd. Beta Ltd. and Gama Ltd. are related persons.

Section 15(2)

The value of supply shall include

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST charges under GST laws, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price;

(c) incidental expenses, commission, packing and any amount charged by the supplier to the recipient of a supply in respect of the supply at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central and State Governments.

Explanation – For this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Section 15(2)(a)

Value of supply shall include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST charges under GST laws, if charged separately by the supplier;

All the taxes, duties etc. which are not subsumed in GST, forms part of the taxable value.

Ex- If a supplier of goods pays municipal tax in relation to the goods being supplied and charges the same separately, such tax will form part of the value of supply.

CGST, SGST, IGST, Cess charged under GST laws shall not be included in taxable value.

Question & Answer

Circular No. 76/50/2018 GST dated 31.12.2018 (amended vide corrigendum dated 7.03.2019)

Query-5 What is the correct valuation methodology for ascertainment of GST on TCS under Income Tax Act?

Clarification: For the purpose of determination of value of supply under GST, TCS under the the Income Tax Act would not be includible as it is an interim levy not having the character of tax.

Question & Answer

Rule 32A

The value of supply of goods or services or both on which Kerala Flood Cess is levied u/c 14 of the Kerala Finance Bill, 2019

shall be deemed to be the value determined in terms of section 15 of the Act, but shall not include the said cess.

Section 15(2)(b)

Value of supply shall include any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price;

A supplier may need to incur various expenses in order to make a particular supply of goods / services. In the normal course, he would pay these amounts and they would form part of the price that he charges from the customer (recipient of supply).

However, even if the customer makes direct payment of some of such liabilities (of the supplier) to the third parties, and the supplier does not include this amount in his bill, it would still form part of the value of the supply.

Ex

Grand Biz contracts with ABC Co. to conduct a dealers’ meet. In furtherance of this, Grand Biz contracts with vendors to deliver goods / services, like water, soft drinks, audio system, projector, catering, flowers etc. at the venue on the stipulated dates at the stipulated prices. Grand Biz is liable to make these payments as contracted.

The soft drinks supplier wants payment upon delivery; ABC Co. agrees to pay the bill raised by the soft drinks vendor on Grand Biz on receiving the crates of soft drinks.

This amount is not billed by Grand Biz to ABC Co. However, it would be added to the value of supply provided by Grand Biz to ABC Co. for payment of GST.

Question & Answer

Sl No-1 of Circular No. 47/21/2018-GST dt. 08-06-2018

Whether moulds and dies owned by Original Equipment Manufacturer (OEM) that are sent free of cost (FOC) to a CM) is leviable to tax and whether OEMs are required to reverse ITC in this case?

Goods on Free of cost to unrelated parties is not deemed supply in Sch-I

1.1 Moulds and dies owned by OEM which are provided to CM (the two not being related persons or distinct persons) on FOC basis does not constitute a supply as there is no consideration involved.

Further, since moulds and dies are provided free of cost by the OEM to the CM in the course or furtherance of his business, there is no requirement for reversal of ITC availed on such moulds and dies by the OEM.

Value of moulds and dies shall not be added to value of supply of CM

1.2 While calculating value of the supply of CM, value of moulds and dies provided free of cost shall not be added to the value of such supply because the cost of moulds/dies was not to be incurred by the CM and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) CGSTA, 2017.

1.3 However, if the contract between OEM and CM was for supply of components made by using the moulds/dies belonging to the CM, but the same have been supplied by the OEM to the CM on FOC basis, the amortised cost of such moulds/dies shall be added to the value of the components. In such cases, the OEM will be required to reverse the credit availed on such moulds/ dies, as the same will not be considered to be provided by OEM to the CM in the course or furtherance of the former’s business.

This clarification affirms the view that if an element or a constituent of a supply, which the supplier is responsible to incur/provide for the same, is actually paid for or made by the recipient, the value of such element or constituent of the supply is to be added to the value of the supply being charged by the supplier. If, however, the supplier is not responsible to incur/provide for such element or constituent and the recipient provides for the same, the respective value is not to be added to the value of supply.

Question & Answer

Section 15(2)(c)

Value of supply shall include incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply at the time of, or before delivery of goods or supply of services;

Outward freight, transit insurance

Where the supplier agrees to deliver the goods at the buyer’s premises and arranges for transport and insurance the contract of supply becomes a composite supply;

The principal supply being the supply of goods.

Therefore, outward freight and transit insurance become part of the value of the composite supply and GST is payable thereon at the same rate as applicable for the relevant goods.

However, if the contract for supply is on ex-factory basis where buyer pays the outward freight and insurance, the same will not be included in the value of supply of goods.

Question & Answer

Section 15(2)(d)

Value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply;

Ex

A supply priced at Rs.2,000 is made, with a credit period of 1 month for payment. Thereafter interest @ 12% is chargeable. The payment is received after the lapse of two months from the date of supply. The amount of interest @ 12% p.a. (i.e. 1% per month) on Rs.2,000 for one month after the free credit period of one month, is Rs.20. Such interest will be added to the value and thus, the value of supply will work out to be Rs.2,020, assuming the interest to be exclusive of GST.

Time of supply for such interest/ late fee/ penalty

Refer para 12.6 of guide on section 12

As per section 12(6), time of supply of such interest, late fees or penalty shall be date of receipts of such amount.

Further, since such charges are an addition in the value of supply, same rate of tax as applicable on the main supply of goods / service are applicable on such charges as well.

Question & Answer

Section 15(2)(e)

subsidies directly linked to the price excluding subsidies provided by the Central and State Governments

Explanation.– For this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Blanket subsidy/donation received are not includible in the value.

Only subsidies directly linked to the price of goods/services are added to the value.

if the subsidy is given by the State or Central Government, it is not to be added to the value of supply

Ex

The selling price of a notebook is Rs.50. For notebooks sold to students in Government schools, a company uses its CSR funds to pay the seller Rs.30, so that the students pay only Rs.20 per notebook. The value of the notebook will be Rs.50, as this is a non-government subsidy. If the same subsidy is paid by the Central or State Government, the value of the notebook would be Rs.20

Question & Answer

Numerous kinds of discounts are given by the suppliers to their customers namely, trade discounts, cash discounts, quantity/volume/performance discounts etc.

Such discounts are reduced from the sale price of the supply.

However, not all discounts offered by the supplier to their customers are allowed as a deduction from the value.

Only such discounts which satisfy the conditions prescribed in section 15(3), are allowed as deduction from the value.

Section 15(3)(a)

The value of the supply shall not include any discount which is given

before or at the time of the supply

if such discount has been duly recorded in the invoice issued in respect of such supply; and

Ex

Royal Biscuit Co. gives a discount of 30% on the list price to its distributors. Thus, for a carton of Spice Bisk, in the invoice the list price is mentioned as Rs.200, on which a discount of 30% is given to arrive at the final price of Rs.140. The value is Rs.140, as the discount is allowed at the time of supply and shown in the invoice.

Question & Answer

It is not always commercially feasible to determine all discounts before or at the time of supply or record them in the invoice.

For instance, cash discount given for making the payment within a stipulated time. Even though the discount is established before/at the time of supply, the supplier cannot record such discount in the invoice as he does not know if the buyer will make the payment within the stipulated time.

Likewise, in case of quantity/volume/performance discount also, the supplier is not aware before/at the time of supply as to whether the buyer would purchase the requisite quantity within the stipulated time.

Therefore, in this case also, the discount cannot be recorded in the invoice. In such cases,  initially the GST is paid on the gross value indicated in the invoice without considering the discount. The supplier, however, passes the discount to the buyers subsequently by issuing credit notes.

Section 15(3)(b)

The value of the supply shall not include any discount which is given

after the supply has been effected, if

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) ITC attributable to the discount has been reversed by the recipient of the supply.

Ex

The agreement of Raju Electrical Appliances with its dealers is that purchase of rice cookers over 1,000 pieces in the Diwali month will entitle them to discount of 5% per cooker. Therefore, the quantum of discount can be determined only at the end of Diwali month.

However, since the agreement relating to discount was in existence at the time of supply, and the discount can be worked out for each invoice, such post supply discount will be allowed as a deduction from the value of supply of rice cookers

If any of the above conditions are not satisfied, the GST liability of supplier cannot be reduced.

Ex- A company announces turnover discounts after reviewing dealer performance during the year. The discounts are based on performance slabs and are given as cash-back. As these discounts were not known at the time of supply of the goods, they will not be deducted from value of those goods. Hence, the company will not be able to adjust excess tax paid from its tax liability.

Commercial credit note for discount

The supplier, however, can issue a commercial credit note for the value of discount. In such a scenario, the buyer will not be required to reverse any input tax credit.

For Volume/ Secondary discounts treatment under GST, please refer para 17.5.11.1 of Guide on section 17.

Question & Answer

Section 15(4)

Where the value of the supply cannot be determined u/ss (1),

the same shall be determined in such manner as may be prescribed.

Rule 27

Where the supply is for a consideration not wholly in money, value of supply shall be determined as follows;

.

Ex

Illustration (1) of rule 27

Open market Value is available

Where a new phone is supplied for Rs.20,000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24,000,

the open market value of the new phone is Rs.24,000.

Ex

Illustration (2) of rule 27

Open market Value is not available

Where a laptop is supplied for Rs.40,000 along with the barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.4,000 but the open market value of the laptop is not known,

value of the supply of the laptop is Rs.44,000.

Explanation (a) to Rule 35

“open market value” means

full value of money excluding taxes under GST law, payable by recipient

provided such supply is between unrelated persons and

price is the sole consideration for such supply

Explanation (b) to Rule 35

supply of goods or services or both of like kind and quality” means

any other supply made under similar circumstances,

which is same or closely or substantially resembles

in respect of characteristics, quality, quantity, functionality, reputation

to the supply being valued.

Question & Answer

Rule 28(1)

Where the supply of goods or services or both is between

distinct persons as specified in section 25(4) or (5) or

related person, other than where the supply is made through an agent

Value of supply shall

(a) be the open market value of such supply;

(b) if the open market value is not available, be the value of supply of like kind and quality;

(c) if the value is not determinable u/c (a) or (b), be the value as determined u/r 30 or 31, in that order:

For definition of related person, please refer explanation to section 15

For meaning of distinct person, please refer guide on section 25

Ex

Supplies valued as per rule 28

a) Intra-State stock transfer of goods between different registrations of an entity under same PAN

b) Inter-State stock transfer of goods between different registrations of an entity under same PAN

c) Import of services by a company from a holding/subsidiary company in course or furtherance of business

Question & Answer

1^st Proviso to Rule 28(1)

where the goods are intended for further supply as such by the recipient,

at the option of the supplier, the value shall be = 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.

However, it is not mandatory for the supplier to adopt this method of valuation.

He can opt to value his goods in accordance with the valuation methods prescribed in clause (a), (b) or (c) above.

Ex

ABC Pvt. Ltd., a registered supplier, is a manufacturer of taxable goods. The company’s factory is located in Noida, Uttar Pradesh and depot in Gurugram, Haryana.

Gurugram depot is eligible for full ITC.  

Noida factory agrees to supply goods worth Rs.1,00,000 to a customer of Gurugram depot (on its behalf). Noida factory ships the goods directly to the customer in Gurugram and bills the Gurugram depot. Noida factory has the option of billing to Gurugram depot at Rs.90,000 (90% of Rs.1,00,000).

It can also bill the Gurugram depot actual cost as Gurugram depot is eligible for full ITC.

In the same scenario, if goods are replaced by services, the option of valuing the services @ 90% of value charged by the recipient to unrelated customer will not be available.

However, since recipient is eligible for full ITC, the value of supply of service declared in the invoice shall be taken as open market value (taxable value).

2^nd Proviso to Rule 28(1)

where the recipient is eligible for full ITC, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

[1][Rule 28(2)

Notwithstanding anything contained in sub-rule (1)

Value of supply of services between related person, by way of providing corporate guarantee to any banking company or financial institution shall be

1% of the amount of such guarantee offered, or

the actual consideration,

whichever is higher

Rule 29

The value of supply of goods between the principal and his agent shall-

(a) be the open market value of the goods being supplied, or

at the option of the supplier, be 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person, where the goods are intended for further supply by the said recipient.

(b) where the value of a supply is not determinable u/c (a), the same shall be determined u/r 30 or 31 in that order.

Illustration on clause (a)

A principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at Rs.5,000 per quintal on the day of the supply.

Another independent supplier is supplying groundnuts of like kind and quality to the said agent at Rs.4,550 per quintal.

The value of the supply made by the principal shall be Rs.4,550 per quintal or

where he exercises the option, the value shall be 90% of Rs.5,000 i.e., Rs.4,500 per quintal.

Question & Answer

Rule 30

Where the value of a supply is not determinable by any of the preceding rules of this Chapter,

the value shall be 110% of the

cost of production or manufacture or

cost of acquisition of such goods or

cost of provision of such services.

Question & Answer

Rule 31

Where the value of supply cannot be determined u/r 27 to 30,

the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15 and the provisions of this Chapter:

Provided that in the case of supply of services, the supplier may opt for this rule, ignoring rule 30.

First, rule 30 is to be applied, if that is not feasible, rule 31 is to be applied.

However, in case of supply of services, the supplier has an option to skip rule 30 and directly apply rule 31

Rule 31A(1)

Notwithstanding anything contained in the provisions of this Chapter,

the value in respect of supplies specified below shall be determined in the manner provided hereinafter.

[2][Rule 31A(2)

The value of supply of lottery shall be higher of

a) 100/128 of the face value of ticket or

b) 100/128 of price as notified in the Official Gazette by the Organising State

Explanation:– For this sub-rule, “Organising State” has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.]

Ex

The Government of a State runs a lottery where face value of a lottery ticket is Rs.250 and the price notified by the State Government in the Official Gazette is Rs.240.

Value of lottery is Rs.195.313, i.e. higher of

Rs.195.313 (250 x 100/128). or

Rs.187.50 (240 x 100/128).

Ex

The Government of a State runs a lottery where face value of a lottery ticket is Rs.250 and the price notified by the State Government in the Official Gazette is Rs.260.

Here, the value of lottery is Rs.203.13, i.e. higher of

Rs.195.313 (250 x 100/128) or

Rs. 203.13 (260 x 100/128)

Question & Answer

Rule 31A(3)

The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club

shall be 100% of the face value of the bet or the amount paid into the totalisator.

Totalisator is a computerised device that pools the wagers/bets (after deduction of charges and statutory taxes) of various persons placing the bet and also divides the wager amount to be distributed to the winning persons.

Rule 32(1)

Notwithstanding anything contained in the provisions of this Chapter,

the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner provided hereinafter.

Rule 32 overrides other rules of valuation.

The valuation methods prescribed u/r 32 are optional;

The supplier can use them if he so desires. He can also opt to value his supplies in accordance with other valuation rules.

Rule 32(2)

The value of supply of services for purchase or sale of foreign currency, including money changing, shall be determined in the following manner.

2 optional methods of valuations are available for determination of value for purchase or sale of foreign currencies.

Rule 32(2)(a)

when currency is exchanged with Indian Rs.,

Value of supply = (Buying/Selling Rate - RBI reference rate at that time)*No of currency:

1^st Proviso - If RBI reference rate is not available

Where RBI reference rate is not available,

Value of supply = 1% of the gross amount of Indian Rs. provided or received by money changer

Ex

On 10th May, Mr. Doshi converted USD $ 100 into Rs.7,400 @ Rs.74 per USD through Eastern Money Changers. RBI reference rate on 10th May for US $ is Rs.75 per US $. The

Value of supply = (Rs.75 – Rs.74)*$100 = Rs.100 and GST will be levied on this amount.

If the RBI reference rate is not available, then 1% of Rs.7,400 i.e., Rs.74 will be the value of supply of service.

Question & Answer

2^nd Proviso to Rule 32(2)(a)

where neither of the currencies exchanged is Indian Rupees,

Value of supply = 1% of lower of amounts the person changing the money would have received

Foreign Currency-1*RBI reference rate = Amount in Rs.

Foreign Currency-2*RBI reference rate = Amount in Rs.

Ex

US $ 9,000 are converted into UK £ 4,500.

RBI reference rate at that time for US $ is Rs.74/$ and Rs.98/£.

In this case, neither of the currencies exchanged is Indian Rupee.

Value of taxable service would be 1% of the lower of the following:-

(a) US dollar converted into Indian rupees = $ 9,000 × Rs.74 = Rs.4,41,000

(b) UK pound converted into Indian rupees = £ 4,500 × Rs.98 = Rs.6,66,000

Value of supply of service = 1% of Rs.4,41,000 = Rs.4,410

Question & Answer

3^rd Proviso to Rule 32(2)(a) and Rule 32(2)(b)

a person supplying the services may exercise the option to ascertain the value for a FY and such option shall not be withdrawn during the remaining part of that FY.

.

Ex

X Pvt. Ltd., a money changer, has exchanged US $ 10,000 to Indian rupees @ Rs.74/$. X Pvt.

Value of gross currency exchanged in Rs. = $10,000*74 = Rs.7,40,000

Value the supply u/r 32(2)(b) = Rs.1,000 + 0.50% of the (Rs.7,40,000 – Rs.1,00,000) = Rs.4,200

Question & Answer

Rule 32(3)

For booking of tickets for travel by air provided by an air travel agent

value of the supply of services shall be

(a) 5% of the basic fare in the case of domestic bookings, and

(b) 10% of the basic fare in the case of international bookings

Explanation- For this sub-rule, “basic fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.

Question & Answer

Rule 32(4)

The value of supply of services in relation to life insurance business shall be,-

(a) Policy with dual benefits of risk coverage and investment

Value = gross premium charged - amount allocated for investment, or savings on behalf of the policy holder, if such an amount is intimated to the policy holder at the time of supply of service;

(b) in case of single premium annuity policies other than (a),

Value = 10% of single premium charged from the policy holder; or

(c) in all other cases,

Value = 25% of the premium charged in the first year and 12.5% of the premium charged from the policy holder in subsequent years:

Proviso to Rule 32(4) If entire premium is towards risk cover in life insurance

nothing contained in this sub-rule shall apply where the entire premium paid is only towards the risk cover in life insurance

Question & Answer

Rule 32(5)

Where a taxable supply is provided by a person

dealing in [buying and selling of second hand goods] i.e., used goods as such or after such minor processing which does not change the nature of the goods and

where no ITC has been availed on the purchase of such goods,

Value of supply = Selling price - purchase price and where the value of such supply is negative, it shall be ignored

Ex

A company X Ltd., which deals in buying and selling of second hand cars, purchases a second hand Maruti Alto Car of March, 2015 make (Original price Rs.5 lakh) for Rs.3 lakh from an unregistered person. It incurs Rs.30,000 on minor furbishing and sells the car for Rs.3,50,000.

The company does not avail any ITC.

The value for GST purpose shall be rs.50,000 [3,50,000-3,00,000]

Persons who purchase second hand goods after payment of tax to supplier of such goods, are governed by this valuation rule only when they do not avail ITC on such input supply.

If ITC is availed, then such supply is governed by normal GST valuation provisions.

Proviso to Rule 32(5)

purchase value of goods repossessed from a unregistered defaulting borrower, for the purpose of recovery of a loan or debt

= purchase price of such goods by the defaulting borrower – 5% for every quarter or part thereof, between purchase the and disposal date by the person making such repossession

If the defaulting borrower is registered.

The repossessing lender agency will discharge GST at the supply value without any reduction from actual/notional purchase value

Question & Answer

Extract of Notification 08/2018-Central Tax (Rate) dt. 25-01-2018

If ITC has not been availed on motor vehicle

In case of a RP who has claimed depreciation u/s 32 of the Income-Tax Act on the said goods,

Value = margin of the supplier = Consideration received - Depreciated value of such goods on the date of supply,

and where the margin of such supply is negative, it shall be ignored; and

If ITC has been availed on motor vehicle

This notification shall not apply, if the supplier of such goods has availed ITC on such goods.

In such case, GST is payable on full amount of consideration.

Rule 32(6)

The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp)

which is redeemable against a supply of goods or services or both

shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

Ex

If Rs.1,500 worth of meal coupons are supplied by the taxable person, the value of supply of such coupons under GST law will also be Rs.1,500.

Question & Answer

Rule 32(7)

The value of taxable services provided by such class of service providers as may be notified by the Government, as referred to in paragraph 2 of Schedule I of the said Act between distinct persons u/s 25, where ITC is available,

shall be deemed to be NIL.

No such services have been notified so far.

Sometimes a supplier may incurs some expense on behalf of recipient which is not a part of the supply made by him.

If such expense is incurred by the supplier as a pure agent of the recipeint, it is not includible in the value of supply;

if not incurred as pure agent, the same is includible in the value of supply.

Rule 33

Notwithstanding anything contained in the provisions of this Chapter,

the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Ex

Illustration. - Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

Ex

A is an importer and B is a custom broker. A approaches B for customs clearance work in respect of an import consignment. The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter. So A, also authorises B, to expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals.

Here, B is providing customs brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation, is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of customs broker service provided by B to A. This, in sum and substance is the relevance of the pure agent concept in GST.

Ex

Port fees, port charges, custom duty, dock dues, transport charges etc. paid by customs broker on behalf of the owner of goods.

Explanation to Rule 33

pure agent” means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Broadly speaking, a pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply.

While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is on pure agent basis.

The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.

Question & Answer

Extract of Circular No. 115/34/2019–GST dt. 11-10-2019

Services provided by an airport operator to passengers against consideration in the form of user development fee (UDF) and passenger development fee (PSF) are liable to GST.

PSF and UDF are collected by the airlines as an agent and is not consideration for any service provided by the airlines. Thus, airline is not responsible for payment of GST on UDF or PSF provided the airline satisfies the conditions prescribed for a pure agent u/r 33 of the CGST Rules. It is the licensee, that is the airport operator which is liable to pay GST on UDF and PSF.

The airline acting as pure agent of the passenger should separately indicate actual amount of PSF and UDF and GST payable on such PSF and UDF by the airport licensee, in the invoice issued by airlines to its passengers. The airline shall not take ITC of GST payable or paid on PSF and UDF. The airline would only recover the actual PSF and UDF and GST payable on such PSF and UDF by the airline operator. The amount so recovered will be excluded from the value of supplies made by the airline to its passengers.

Rule 34(1)

The rate of exchange for determination of value of taxable goods shall be the applicable rate of exchange as notified by the Board u/s 14 of the Customs Act, 1962 for the date of time of supply of such goods in terms of section 12 of the Act.

Rule 34(2)

The rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of the Act.”

Rule 35

Where the value of supply is inclusive of iGST, CGST, SGST, UTGST,

the tax amount shall be determined in the following manner

Tax amount = (Value inclusive of taxes X GST rate) ÷ (100+ sum of GST rate)

Section 15(5)

Notwithstanding anything contained in sub-section (1) or sub-section (4),

the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.